How New Minimum Wage and Service Contract Act Health and Welfare Rates Apply to Your Contract

PilieroMazza PLLC

PilieroMazza PLLC

As we head into a busy proposal and award season, keep in mind some important changes to Service Contract Act (“SCA”) wages and fringe benefits. In July, the Department of Labor (“DOL”) issued revised SCA health and welfare (“H&W”) benefit amounts, increasing the base rate from $4.41 per hour to $4.48 per hour. An H&W rate of $4.18 per hour is now applicable to employees performing work on contracts that include FAR 52.222-62, Sick Leave for Contractors. This rate takes into account that employers who are required to provide sick leave cannot count sick leave provided against the H&W benefit. Hawaii employers should look closely for special rates that apply to contracts performed there.

Also, keep in mind that DOL recently announced that, beginning January 1, 2019, per Executive Order 13658, Establishing a Minimum Wage for Contractors, the minimum wage for all employees working on applicable contracts will rise from $10.35 to $10.60 and will be subject to increase each year. Please keep this in mind because SCA wage rates in wage determinations may be lower than this amount. Contractors will need to pay the higher of the two rates.

Each time the H&W rate increases or the minimum wage changes, we get a number of questions regarding how to implement these new rates. Companies might be picking up new contracts, renewing options, or modifying existing contracts with a new wage determination if they have any existing SCA contracts. If that is the case, here is what they need to know:

1. Should I increase H&W rates on all of my SCA contracts now?
No. Although the new wage determinations will be issued by DOL, the only H&W rate that is applicable to your contract is the rate that is on the wage determination incorporated into the government contract on which the employees are working. These new wage determinations are not effective until one is incorporated into your contract by modification.

2. When is the contracting officer required to incorporate the new wage determination?
Any new solicitation should include the new wage determinations, assuming the solicitation was issued 30 days after the wage determination was issued. For pre-existing government contracts, the contracting officer should incorporate the new wage determination into your contract at the option year through the contract modification process. The contracting officer could choose to incorporate the new wage determination earlier, but this is rare.

3. Am I entitled to a price adjustment once the wage determination is incorporated?
Yes. FAR 52.222-43 should be included in your contract and entitles you to the difference between what you currently pay employees and what you will have to pay employees once the new wage determination becomes a part of your contract. You can also request any associated tax or insurance costs that increase. Be on the lookout for any contract clauses that try to work around this requirement or contracts that do not include this FAR provision and consult counsel.

4. Can I increase the rate now and get a price adjustment later when the correct wage determination is issued?
This is not advisable. Many employers are sympathetic to employees who might complain that they are getting paid less than others in H&W. While contractors may go ahead and provide the increases, any increase you provide to employees prior to incorporation of the wage determination may invalidate eligibility for a price adjustment. Again, contractors may only recover the actual difference between what is paid to employees and what the new wage determination requires, not the difference between wage determinations. Therefore, if you are already paying employees $4.48 per hour at the time the contract is modified, there is no difference to recover.

5. We have not received a new wage determination in several years. What should we do?
Although it is not a contractor’s responsibility to alert the contracting officer that a new wage determination should be applied, there are times where it may be prudent to remind the contracting officer that new wage determinations have been issued. As much as DOL tries, sometimes contracting officers are not aware of an updated wage determination, or it is forgotten. Alerting the contracting officer may help you avoid a disgruntled employee complaining to DOL. DOL ultimately has the authority to require that the contracting officer incorporate the new wage determination in a timely manner.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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